Euro zone factory prices nearly flatline in October

Reuters Staff

3 Min Read

BRUSSELS (Reuters) - Euro zone factory prices barely rose in October, echoing the slowing pace in consumer inflation, although the European Central Bank is expected to wait a little longer before cutting interest rates to help the slumping economy.

Employees work in a car parts factory in Burgos, northern Spain October 28, 2011. REUTERS/Felix Ordonez

Prices at factory gates in the 17 countries using the euro rose 0.1 percent in October from September, the EU’s statistics office Eurostat said on Tuesday, just above the 0.0 percent level expected by economists polled by Reuters.

The producer price index was up 2.6 percent in October compared to the same month a year ago.

Consumer inflation in the euro zone, which has been well above the ECB’s target of just below 2 percent for more than a year, fell sharply in November to 2.2 percent.

That cooling in inflation pressures suggests ECB policymakers have room to help the euro zone’s economy that slipped into recession in the third quarter of this year, by lowering the cost of borrowing for families and businesses.

ECB policymakers kept rates at a record low of 0.75 percent in November and are expected to keep rates unchanged again this week, but expectations are rising of a rate cut early next year.

“We do not expect a rate change on Thursday, although the decision is unlikely to be unanimous and some Governing Council members will probably favor a 25 basis point cut,” said Mario Valli, chief euro zone economist at UniCredit.

The ECB sees current monetary policy as “very accommodative” but the bank has also shifted its language, playing down hopes for an economic recovery any time soon, while many economists see the recession continuing in 2013.

The ECB will likely take heart from the October producer prices that show a 0.2 percent fall in energy costs compared to September, the first fall since June.

High oil prices at a time of recession have made life harder for companies trying to keep down costs.

Brent crude traded around $110 a barrel on Tuesday, down from prices near $120 a barrel in August, as weak manufacturing data in Europe and the United States pointed to weaker demand for oil. Still, tensions between Iran and the West over Tehran’s nuclear ambitions have persisted and driven crude higher despite weak global demand for energy.